Monaco

Only Yacht

In the wake of recent incidents, such as onboard fires and damage at shipyard facilities, <a href="https://www.superyachttimes.com/" rel="noopener noreferrer" target="_blank" title="">SuperYacht Times</a> takes a look into the complexities and dynamics of the superyacht insurance sector. Equipped with state-of-the-art technology and advanced design features, modern superyachts require comprehensive policies to address the myriad risks associated with their operation, and the various hazards they may encounter.<a href="http://superyachttimes.com" rel="noopener noreferrer" target="_blank" title="">SYT</a> explores the subject of superyacht insurance, focusing on the processes of insuring new-build yachts, with insight from key industry experts. <a href="http://superyachttimes.com" rel="noopener noreferrer" target="_blank" title="">SYT</a> also examines the procedures implemented when superyacht projects suffer damage due to unforeseen accidents.<img src="https://photo-assets.superyachttimes.com/photo/290127/image/large-3167b0a95fe2fec553b8f4293b822125.jpg" data-gid="gid://syiq/Photo/290127">Overview of the insurance policy process:In the context of the new-build process, the insurance journey typically begins when an owner expresses interest in ordering a new-build yacht. To facilitate this, the owner may engage a brokerage firm to coordinate all relevant stakeholders involved in the yacht-building process. The initial stage involves drafting what are known as General Arrangements (GAs), which detail the yacht's design and specifications. Once these plans receive the owner’s approval, the focus shifts to selecting a shipyard capable of constructing the yacht according to these detailed specifications.During the construction phase of a yacht, two critical areas of insurance must be considered:The first is Builder's Risk Insurance Policy. This is designed to protect the vessel, along with associated property and materials, from the commencement of construction through to the final delivery to the customer. This coverage, is almost invariably secured by the builder, safeguards against physical loss or damage and covers collision liability during sea trials and delivery. It is common for the shipyard to undergo a survey before the yacht-building process begins to ensure that the yard has the capability to construct the yacht with all the necessary safety and security systems in place (JH143 survey sets out the guidelines).As the yacht build process approaches completion, another essential insurance policy, the Pre-delivery Cover, becomes relevant. This coverage is specifically designed to protect the crew employed by the owner, while they are working in the shipyard. Typically, this insurance is secured approximately three to four months before the vessel is handed over, ensuring all owner employed parties are covered well before the final stages and a seamless transition to the full protection and indemnity policy.Upon the handover of the vessel, three types of insurance coverage come into effect:<ul><li>Hull &amp; Machinery (H&amp;M): This covers damage to the yacht itself and may include several specific provisions such as emergency towing, tenders and equipment. Personal effects, fine arts, and coverage against war risks, piracy, kidnap, and ransom scenarios may be included but are often also insured independently.</li><li>Protection &amp; Indemnity (P&amp;I): This pertains to the liabilities of the yacht owner and typically encompasses third-party liability, pollution and environmental liabilities, wreck removal, uninsured boater coverage, liabilities towards passengers and guests, water sports liability, and legal costs. Employer’s liability to seafarers can also be included if not insured separately.</li><li>Crew Medical Accident Insurance: This provides coverage for crew arising directly from the ownership and operation of the yacht. It includes costs that arise from personal injury, illness, death, medical, and other expenses to the yacht's crew.</li></ul>In addition, these types of insurance coverages become must be arranged by the owner, who holds title to the vessel and oversees its operations. The necessary coverage depends on the vessel’s registration type (private vs. commercial), flag, and the country where the owning corporation is incorporated. As the process of securing coverage in the market can be time-consuming, the owner's team should start making arrangements well before the vessel is delivered.The final component of all insurance documentation is the Know Your Client (KYC) form. This form aims to confirm that the buyer is a suitable individual for ownership. All owners undergo sanction checks by insurers and insurance brokers, who are responsible for presenting the risk to the insurance companies, often known as underwriters. <img src="https://photo-assets.superyachttimes.com/photo/317382/image/large-1b1ccb047df97b332a1bad534d9dfb19.jpg" data-gid="gid://syiq/Photo/317382">Dynamics of the insurance system:During a lecture titled 'Superyacht Insurance' at La Belle Classe Academy, organised by Marcela de Kern, George Lucian, an insurance broker from <a data-gid="gid://syiq/Company/3931" href="#managed-by-system" rel="noopener noreferrer" target="_blank" title="Only Yacht (Company)">Only Yacht</a> based in Monaco, explained the complex relationship between insurance brokers and underwriters. Brokers act as intermediaries, facilitating interactions with underwriters on behalf of their clients. Typically, clients cannot directly engage with underwriters and must go through brokers instead.<img src="https://photo-assets.superyachttimes.com/photo/320322/image/large-7e40536081ba04686d3e40f55decb0aa.jpg" data-gid="gid://syiq/Photo/320322">Lucian emphasised that the primary responsibility of an insurance broker is to "identify the most suitable insurance solutions for our clients." He underscored the advantages of using a broker, particularly their established relationships with underwriters, which can enhance negotiation power during quoting and claims processes. "Underwriters recognise brokers and are familiar with the clients they represent," he stated, noting that successful outcomes largely depend on these relationships.In addition to facilitating claims processing, brokers assist clients in managing the contract lifecycle, including any necessary endorsements, modifications, or ratifications.They are readily available to offer advice and support when challenges or changes arise. During a claim, a broker advocates for the client with the underwriters, similar to how a lawyer represents a client in court. Given the intricacies and frequent ambiguities in yachting insurance, even well-prepared contracts often require significant negotiation, highlighting the importance of a broker's role in these complex scenarios.Additionally, Lucian articulated the importance of noting that all these contracts are structured on a one-year basis. After one year, everything is renegotiated to seek better terms in the market. The insurance broker plays a crucial role in this process, ensuring that all contracts are reviewed annually. This approach is necessary because the yachting world changes rapidly, making it essential to reassess all details of the yacht and the policy to ensure the new contract is perfectly tailored.What are the insurance procedures for investigating an incident at a shipyard?In a discussion about managing incidents during the construction of superyachts, Ezio Dal Maso, Head of the Superyacht Team at <a data-gid="gid://syiq/Company/7786" href="#managed-by-system" rel="noopener noreferrer" target="_blank" title="Stephenson Harwood (Company)">Stephenson Harwood</a>, emphasised the importance of distinguishing between total and partial losses. He explained, “A total loss occurs when the construction of the hull sustains damages that typically exceed 80% (according to the Nordic Marine Insurance Plan framework ‘NMIP’) of its value,” noting that such determinations usually require confirmation by insurance-appointed surveyors. Dal Maso added, “Any damage that falls below this threshold is defined as a partial loss.”<img src="https://photo-assets.superyachttimes.com/photo/320393/image/large-b27652e30636ba8fd02715c1e4e60ebe.jpg" data-gid="gid://syiq/Photo/320393">He further elaborated on the financial implications, stating: “In the event of a total loss the insurance company will compensate the buyer, leading to the termination of the contract and reimbursement.” For partial losses, Dal Maso specified that, “most contracts allow the builder to use the insurance proceeds to repair the yacht and complete its construction.” He noted that the time needed for these repairs is often regarded as a permissible delay, potentially postponing the delivery date.Dal Maso also cautioned that insurance coverage is not an absolute guarantee. "While policies typically promise compensation, coverage is always subject to specific terms and conditions." He stressed the importance of including an indemnity clause in contracts to ensure the builder compensates the buyer if the insurance fails to pay. Additionally, it is common for policies to include a deductible, and buyers typically expect the builder to cover any amounts not paid by the insurers. Moreover, both the buyer and any lender financing the construction will want to review a copy of the builder’s insurance policy to assess the creditworthiness of the insurers and the terms of coverage.What are the future implications of incidents on the insurance market for new-builds?From the buyer's perspective, if the superyacht was financed, a total loss typically triggers either a default or a mandatory prepayment of the loan. The financing terms generally allow a grace period of 120-180 days before the payment is due. Since investigations can be lengthy, there is a risk that the buyer might need to repay the loan before receiving insurance funds, particularly if waiting for the investigation's conclusion and the insurers' payout decision.&nbsp;From the shipyard's perspective, recurring incidents can make it increasingly difficult to secure insurance, affecting underwriters' willingness to provide coverage. This often leads to higher costs for new-builds at that particular shipyard, as they pass on the increased insurance premiums to buyers.Dal Maso further outlined how a significant loss affects the entire superyacht insurance market. For high-value new-build superyachts, no single insurer covers all risks. Typically, one leading insurer, supported by a syndicate of multiple insurers, shares these risks across various countries, including Italy, Germany, the Netherlands, and Norway. Thus, a substantial loss in one country, such as Italy, could cause insurance costs to rise in another, like Germany, due to the interconnected nature of the market and its conditions.<img src="https://photo-assets.superyachttimes.com/photo/215492/image/large-0ce9e0c06106266987794c90a057b45a.jpeg" data-gid="gid://syiq/Photo/215492">The Industry stakeholders will continue to monitor these developments and their future impact on the insurance market for large new-build superyacht projects, as well as how shipyards will manage the &nbsp; anticipated increase in insurance premiums.

Fires, bankruptcy and build delays: Making sense of new-build yacht insurance

This article aims to explore the subject of insurance in the superyacht sector, focusing on the processes involved in insuring new-build yachts.